CG63985 | Business Asset Disposal Relief: qualifying disposals by trustees

Entrepreneurs’ Relief was renamed in Finance Act 2020 with effect from 6 April 2020. The new name is generally used in this guidance but should be read as applying to times before that date.

TCGA92/S169J

Business Asset Disposal Relief is available where there has been “a disposal of trust business assets”. TCGA92/S169J(1) provides that there is such a disposal where the following three conditions are satisfied.

1. The trustees of a settlement dispose of “settlement business assets”

“Settlement business assets” are assets which are part of the settled property of the settlement and are shares in or securities of a company (or interests in such shares or securities) or assets (or interests in such assets) that have been used for the purposes of a business - TCGA92/S169J(2).

1. An individual is a “qualifying beneficiary” of the settlement

A “qualifying beneficiary” is an individual who has an interest in possession (other than an interest in possession which has a fixed term) in the whole of the settled property of the settlement, or in a part of the settled property that contains the settlement business assets disposed of - TCGA92/S169J(3). This condition was considered by the Court of Appeal in the case, The Quentin Skinner 2015 Settlement L & Ors v Revenue and Customs [2022] EWCA Civ 1222.

1. One or other of two “relevant conditions” is satisfied

The first “relevant condition” must be satisfied in cases where the settlement business assets disposed of are shares in or securities of a company (or interests in such shares or securities).

The condition applies to the qualifying beneficiary the tests that would have applied under TCGA92/S169I(6) or (7) (see CG63975) if the qualifying beneficiary were an individual making a claim for Business Asset Disposal Relief in relation to a disposal of the shares or securities (or interests in such shares or securities). Thus throughout a period of 2 years ending within the 3 years up to the date of the disposal - TCGA92/S169J(4):

• the company must be the qualifying beneficiary’s “personal company” - see CG64050

• the company must be a trading company or the holding company of a trading group - see CG64060, and

• the qualifying beneficiary must be an officer or employee of the company or of one or more companies that are members of the group - see CG64110.

The second “relevant condition” must be satisfied in cases where the settlement business assets are assets, or interests in assets, that have been used for the purposes of a business. The condition applies, in relation to the qualifying beneficiary, broadly the same tests under TCGA92/S169I(3) and (4) as would apply to an individual making a claim for Business Asset Disposal Relief in respect of a disposal of the assets. The condition is that - TCGA92/S169J(5):

• throughout a period of 2 years ending within the 3 years up to the date of the disposal, the settlement business assets must be used for the purposes of a business carried on by the qualifying beneficiary, and

• the qualifying beneficiary must cease to carry on the business at some time during that 3 year period.

Where settlement business assets are disposed of and the qualifying beneficiary is a member of a partnership that carries on the business, the qualifying beneficiary is treated as ceasing to carry on the business either when the qualifying beneficiary ceases to be a member of the partnership, or when the partnership ceases to carry on the business - TCGA92/S169J(5).

References to the period of 2 years were only 1 year for disposals before 6 April 2019. If however the date of disposal is on or after 6 April 2019 and the business ceased to be carried on before 29 October 2018 then the relevant period remains as 1 year. See CG63975 for further detail.

See CG64140 where there is a disposal of trust business assets and there is at least one other beneficiary apart from the qualifying beneficiary.